Man discharged from his fourth bankruptcy

The Superior Court of Ontario granted a suspended discharge to a man bankrupt for the fourth time in 13 years.

Brian Wayne Flight was given a 12-month-suspended discharge, as the court accepted the mitigating factors in the case. In Flight’s situation, he told the court his financial ordeal stemmed from employing his ex-wife as his accountant at his painting business. She allegedly took all funds earmarked for the Canada Revenue Agency – amounting to more than $150,000 – and funnelled them to herself, says Tara Vasdani, who acted for Flight. The CRA froze his bank accounts and he went bankrupt four times before he figured out that, because of his ex-wife, he hadn’t paid taxes for over a decade, she says.

“So technically, from our point of view, he shouldn't have been bankrupt in the first place,” says Vasdani, principal lawyer at Remote Law Canada.

Vasdani says she was only able to find one case – Mulligan (Re), 2007 BCSC 1784 – in which the bankrupt achieved a fourth discharge. In the B.C. case from 2007, that discharge came with a 15-year suspension.

“Otherwise, pretty much, the case law is consistent to say that after three times, you won’t be granted a discharge,” she says.

Regardless of whether it’s the second, third or fourth, the court can deny a discharge to any serial insolvent. Section 173(1)(j) allows a judge to refuse a discharge to those who have “on any previous occasion been bankrupt or made a proposal to creditors.”

“It's not unheard of for there to be multiple discharges from bankruptcy,” says Timothy Dunn, senior partner and chair of the financial services group at Minden Gross LLP.

The Bankruptcy Insolvency Act is intended to give relief to “honest but unfortunate debtors” he says. Aside from where the insolvency stems from illegal conduct, such as fraud, the first bankruptcy discharge – absent any egregious circumstances – will not be difficult to obtain, but each successive bankruptcy gets progressively harder, Dunn says.

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“These things are decided on their facts,” he says. “Judges – or in this case, registrars – are humans. So they look at it and they weigh the facts that are before them and then they look at what the policy is underpinning the act. And the policy under the act is, we want to try and help people not be stuck in the purgatory of undischarged bankruptcy forever.”

“The Court has a broad discretion to impose terms when considering the discharge of a bankrupt,” says John Finnigan of Thornton Grout Finnigan LLP, whose practice includes insolvency and restructuring litigation.

“Serial bankruptcies by the same individual should, subject to any mitigating circumstances, result in more onerous discharge terms. These can include the requirements to make payments to creditors as a condition of discharge. In extreme cases the payment terms could be such that the individual would remain bankrupt indefinitely and perhaps for many years,” he says.

When someone reaches their third bankruptcy, the court shifts its focus from the remediation and rehabilitation of the bankrupt person, to maintaining the system’s integrity and protecting society and unsuspecting creditors, from them, states Bankruptcy of Willier 2005 BCSC 1138. For a third discharge, “to even be considered” the bankrupt must show the court they have changed their life, such that another bankruptcy is not likely imminent, said Willier, the 2005 Supreme Court of British Columbia decision.

“If there can be a concept of debtors’ recidivism, it is demonstrated in stark relief by a third-time bankrupt,” wrote Master Douglas Baker in the Willier case and in the 1979 Ontario case Re Hardy, 1979 CanLII 1718 (ON SC), the judge said “a third bankruptcy is one too many.”

“There's only one case where there's been a fourth-time bankrupt that was discharged, but he was suspended for 15 years,” she says. “This is the first time that it's been anything less than that, and it's just 12 months. So, what it does is it allows other people who are fourth time bankrupt, to rely now on a decision where they can get a suspension of less than 15 years.”

For the theft of the money meant for the CRA, Flight will proceed against his ex-wife in civil court, says Vasdani.